The neighbourhood energy revolution

OPOWER employs 185 people in Arlington, part of a green-tech
belt that has the highest percentage of technology workers in the
US. By December, there will be 300 employees: a mixture of software
engineers, product specialists, behavioural scientists,
statisticians, marketing experts, infographic designers and
efficiency advocates. The company currently supplies customer
software for nearly all of the major utility companies in the US,
handling data from more than 30 million households and claiming to
generate energy savings that are equivalent to a third of the
entire US solar industry.

Back in January 2007, Yates and Laskey -- who first met at
Harvard -- were sharing a desk in a converted warehouse in San
Francisco's Potrero Hill. Yates, originally from San Diego, had
sold his educational-software company, Edusoft, to publisher
Houghton Mifflin for a reported $20 million in 2004. Laskey, the
son of a Brooklyn district attorney from Long Island, had been
formulating environmental and energy policy for bodies such as The
Nature Conservancy and League of Conservation Voters. At the time,
Laskey and Yates didn't have a specific business in mind, but they
knew that they wanted to use their expertise -- Yates with his gift
for data analysis, Laskey with his campaigning skills -- to do
something with an environmental slant.

The pair had read a New York Times article about the
sharp rise in energy efficiency that occurred when a housing
authority in the US replaced old fridges in low-income homes. Most
green entrepreneurs, Yates and Laskey reflected, were looking at
the supply side of energy -- far fewer were thinking about the
demand. What if their business was about saving energy rather than
making it?

It was a practical proposition for several reasons: the
hardening regulatory pressures on western utility companies to cut
emissions; the imperative for households to save energy; Yates's
proven expertise in data-driven communications; and the immense
potential cost-benefits to the US economy (according to McKinsey's
2009 report Unlocking Energy in the US Economy, energy-saving
opportunities worth at least $130 billion go unrealised every
year).

"We had some basic realisations," Yates says. "There's a
billion-and-a-half utility bills, for example, mailed out every
year in the US -- that's a lot of wasted paper. Also, there's so
much talk about the environment, and yet so little connection
between the actions of an individual and that big talk."

OPOWER now supplies software for 52 utilities across 22 US
states, saving its customers up to 3.5 per cent of their previous
energy needs -- the equivalent of powering a city of 50,000 homes.
It claims that every dollar invested in its programme yields about
three to four dollars in customer savings. The business has tripled
in size every year, and is well incentivised: French biking
holidays, for example, are a reward for client referrals. Last year
the company announced that it had secured third-round financing of
$50 million from Accel Partners, Kleiner Perkins Caufield &
Byers and New Enterprise Associates -- three of the biggest VC
firms in technology. Energy efficiency was the most active segment
of US green investing in the final quarter of last year, with 17
deals worth $162 million in total.

"If we were deployed across all the United States," explains
Yates, "a three per cent reduction in electricity saving is far
more than the entire US solar and wind industry combined. This could be done tomorrow, and with
immediate payback."

But what happens next? After the customers make their initial
savings from the no-brainer "turn appliances off at the wall" tips,
can they expect to continue making significant savings? "Home
energy management is not a one-time action, much like money
management is not solved by opening a savings account," says
Laskey. "People's lifestyles evolve, and they need reminders and
reinforcing messaging to maintain efficient behaviour. As new
technologies become available they need advice on how to
incorporate them into their lives."

Laskey is currently in discussion with utilities in Britain. "We
think that in the UK we could save energy consumers approximately
£570 million annually on today's rates," he says.

In March, the UK Department of Energy and Climate Change
proposed installing 53 million smart meters in 30 million homes and
businesses over the next 20 years. The result: the number of energy
readings with a smart meter would, typically, increase from one a
month to one every 15 minutes. Already, EU legislation makes it
compulsory for energy-efficiency ratings to be published in all UK
homes for sale or rent. New companies such as First Utility and the
AIM-listed Bglobal are jockeying for position with the current "big
six" utilities: EDF, British Gas, E.ON, npower, ScottishPower and
Scottish & Southern Energy. OPOWER says it is very close to
deals with at least one of them.

"We have more consumer-energy-tagged data under management than
anyone we're aware of in the US and, we think, internationally,"
Yates says. "I never wanted to be a businessman, I wanted to reduce
carbon emissions. The business was a means to an end."

Comments

How useful is it to compare a household with four children to one next door without any? Or do consumers have to tell Opower who lives in their home?What about data protection? And are consumers forced to share their usage data with the whole street? Can you opt out of sharing your usage statistics?A poster on Quora writes in reply to "What is Opower's business model?":"1. Governments mandate that utilities implement consumer-facing analytics (and sometimes reimburse them for doing so). But utilities don't know how to do consumer-facing... anything.2. OPower knows how to do consumer-facing analytics.3. Profit!In other words, it is a government-mandated transfer of taxpayer and ratepayer dollars to Opower. To help sustain this business model, OPower has offices in Arlington, VA." *According to the Wall St Journal**, Opower expects annual revenue of $300m. Those dollars come from people's pockets, whether spelt out on the bill or not. Now, once you've told people not to leave the porch light on all night, how can it make sense for the consumer or taxpayer to be paying for Opower year after year after year? A bit of one-off advice is conceivably worth a surcharge on someone's bill. But to be charged annually can be worthwhile only if the bill reduces every year, which it will not do, especially if the initial advice is any good.If the aim were only to get people to use less electricity, it would be far more cost effective to print energy-saving tips on the back of everyone's bill (eg "lag your loft", "don't wash half loads", etc). But then there would be no recurring fees for Opower. One wonders if the firm lobbied for this legislation.* http://www.quora.com/What-is-OPowers-business-model?q=opower ** http://blogs.wsj.com/venturecapital/2010/11/29/opower-tallies-50m-amid-smart-meter-backlash/